Earnings Call: Q1 2021

Apr 28, 2021

Hello. I am Ken Sheng, the Head of Investor Relations for ASE Technology Holdings. Welcome to our first quarter twenty twenty one earnings release. Thank you for attending our earnings presentation today. Please refer to our safe harbor notice on Page two. All participants consent to having their voices and questions broadcast via participation of this event. If participants do not, please disconnect at this time. I would like to remind everyone that the presentation that follows may contain forward looking statements. These forward looking statements are subject to a high degree of risk, and our actual results may differ materially. For the purposes of this presentation, our dollar figures are generally stated in New Taiwan Dollars unless otherwise indicated. As a Taiwan based company, our financials are presented in accordance with Taiwan IFRS. Results presented using Taiwan IFRS may differ materially from results using other accounting standards, including those presented for subsidiary using Chinese GAAP. I'm joined today by doctor Tian Wu, our COO, and Joseph Tung, our CFO. For today's call, I will first be going over our financial results. Joseph and Tian will then be available to answer questions during the Q and A. During our last earnings release, we talked about seeing an increasingly tight semiconductor supply chain. At the time, we indicated that we saw tight supplies of wafers, components, substrates, and capital equipment. The tight supply environment continues to be true today. During the quarter, headlines citing semiconductor shortages have spread into daily newspapers. Semiconductor companies, our customers, have started to plan further out with orders being placed now for products to be delivered in 02/2022. Longer term loading agreements, which seemed like an unusual request in the back half of 2020, now are being regarded as a requisite by not only us, but by our customers as Last quarter, we expressed that we expected the logic semiconductor industry to grow between five ten during 2021. We also stated that our ATM business generally targets to grow two times that number. Since that time, we certainly have seen an overall step up in our business. However, we also see some constraint becoming more of an obstacle for further growth. Nevertheless, even with these constraints considered, we still see an improved growth environment with our growth to be on the very high end of the original range. All signs continue to point towards 2021 being a banner year for our ATM business. Meanwhile, our EMS business went through its seasonally soft quarter. The first quarter is usually when companies gauge their inventories and zero in on when to ramp down manufacturing while getting ready for the next product cycle. As a result, for us, volatility tends to be the norm this year, with business coming in a little behind our expectations during such order fine tuning. This year's target manufacturing was made even more complex by bill of material constraints. Looking forward, we do see various product ramps coming, including new SIP and traditional EMS projects in the next few quarters. Please turn to Page three where you will find our first quarter consolidated results. Intercompany transactions between our ATM and EMS business have been eliminated during the quarter. For the first quarter, recorded fully diluted EPS of $1.94 and basic EPS of $1.99. Consolidated net revenue decreased 20% quarter over quarter, but increased 23% year over year. This sequential decline was primarily driven by seasonality of our EMS business. We had a gross profit of $22,000,000,000 with a gross margin of 18.4%. Our gross margin improved by 2.7 percentage points sequentially and 1.8 percentage points year over year. Both margin improvements are principally the result of higher ATM business mix. Our operating expenses decreased by $1,100,000,000 to $11,000,000,000 mainly as a result of lower bonus expenses during the quarter. Our operating expense percentage increased 1.1 percentage points sequentially and declined 1.2 percentage points year over year to 9.2%. The operating expense percentage increase is mainly the result of seasonality. On a full year perspective, we should see improvement from last year's 9% level. Operating profit was $11,100,000,000 down $100,000,000 sequentially and up $5,000,000,000 year over year. Sequentially, operating margin increased 1.7 percentage points to 9.3% and increased 3.1 percentage points year over year. From a total year perspective, we previously expected to be able to achieve point five to two percentage point improvement. We now expect to be able to improve our full year consolidated operating margin by 2.5 to three percentage points, driven by increased scale, a friendly ATM pricing environment, and spill synergies. During the quarter, we had a net non operating gain of $300,000,000. This amount primarily consists of gains related to our foreign exchange hedging activities, investments, and asset sales offset in part by net interest expense of $600,000,000 Tax expense for the quarter was $2,500,000,000 The effective tax rate for the first quarter was 22%. We expect to have an effective tax rate for the year of between 20 to 21% during the full year. Net income for the quarter was $8,600,000,000 representing a decline of $1,500,000,000 sequentially and an improvement of $4,700,000,000 year over year. On bottom of the page, we provide key P and L line items without the inclusion of PPA related expenses. Consolidated gross profit excluding PPA expenses would be $22,900,000,000 with a 19.2% gross margin. Operating profit would be $12,200,000,000 with an operating margin of 10.2%. Net profit would be $9,700,000,000 with a net margin of 8.2%. Basic EPS excluding PP expenses would be $2.26 On page four is our ATM P and L. Worth noting here that the billed revenue reported here is revenue eliminated at the holding company level related to intercompany transactions between our ATM and EMS businesses. During the first quarter, our ATM factories not only held fourth quarter production run rates as per our original expectations, our factories were able to surpass them. As you will see, we were also able to achieve higher than expected profitability as a result of these stronger revenues and on higher test revenue mix. For the most part, the majority of our ATM product lines were running at full or near full capacity. Our wire bond business continues to be capacity constrained, driven not by just increased unit demand, but also by unit bonding complexity. During this time, our ATM factories have remained diligent to our customers trying to supply as much capacity as possible. To cope with the current environment, our preference has been in no particular order to pass through raw material price increases, correct for underperforming engagements, enter into long term loading contracts, and secure key customer relationships. We continue to work with our customers who are trying to work through an extremely challenging production environment. For the first quarter of twenty twenty one, revenues for our ATM business were $73,800,000,000 up $1,000,000,000 from the previous quarter and up $7,600,000,000 from the same period last year. This represents a 1% increase sequentially and a 11% increase year over year. Our ATM revenues came in slightly ahead of our expectations. On a U. S. Dollar basis, our ATM revenues grew by 3% sequentially. This marks the first time in near term history in which ASC's first quarter had sequential revenue growth. Gross profit for our ATM business was $18,000,000,000 up $1,500,000,000 sequentially and $4,700,000,000 year over year. Gross profits improved both sequentially and annually, primarily as a result of higher manufacturing efficiency and significantly higher off season loading. Gross profit margin for our ATM business was 24.4%, up 1.8 percentage points sequentially and 4.3 percentage points year over year. Our gross margin improvement was due to improved loading and a high percentage of low raw material product. ATM gross margin improvement was accomplished despite NT dollar appreciation having a negative 0.8 percentage point impact quarter over quarter and a 2.7 percentage point impact year over year. Looking forward, we do expect this beneficial product mix to reverse itself in the second quarter, and even switching to a high raw material product mix in the third and fourth quarters. However, even with this product mix shift looming, we expect to be able to deliver gradually improving gross margins throughout 02/2021. We are well on our way to achieving full year gross margin in the mid-20s. During the first quarter, operating expenses were $8,100,000,000 down $400,000,000 sequentially and up $300,000,000 year over year. The sequential operating expense decline was primarily driven by a decline in employee bonuses. Meanwhile, the year over year operating expense increase was the result of higher employee salaries due to higher headcount and higher bonus accrual. Our operating expense percentage was 11%, down 0.6 percentage points sequentially and down 0.7 percentage points year over year. During the first quarter, operating profit was $9,900,000,000 representing an improvement of 900,000,000.0 quarter over quarter and an improvement of $4,300,000,000 year over year. Operating margin was 13.4%, improving 2.4 percentage points sequentially and five percentage points year over year. Without the impact of PPA related depreciation and amortization, ATM gross profit margin would be 25.6 and operating profit margin would be 15%. On Page five, you will find a graphical representation of our HCM P and L. On Page six, HCM revenue by market. You can see here seasonal decline in the commenced market segment. However, our automotive consumer and other products picked up to fill the typical seasonal decline gap. On Page seven, you will find our ACV by service type. The quarterly move tend to be too small, but the chart taken as a whole tells a more complete story. You can see here the gradual improvement in underlying strength of our wire bond related business. Meanwhile, our advanced and testing service types have seen a decline, much of which having to do with the impact of The US EAR. On page eight, you can see the results of our EMS and a graph presentation of our business revenue by application. The information we provide in regards to our EMS business may differ materially from the information directly provided by our subsidiary as they report independently using Chinese GAAP. During the quarter, our China based factories were subject to a special government policy for lowering the risk of COVID nineteen by means of reducing travel across China during the Lunar New Year holiday. China highly encouraged factories such as ours to maintain staffing levels throughout the Lunar New Year holiday. This resulted in extra unexpected labor expense. This along with softer than expected business contributed to the lower than expected profitability. During the first quarter, EMS revenues declined 40% sequentially, primarily due to product seasonality. EMS revenues increased 46% year over year as a result of having a expanded revenue base of products. Our EMS gross profit was $4,200,000,000 declining $2,800,000,000 sequentially and increasing $1,100,000,000 year over year. The lower sequential EMS gross profit was the result of lower loading due to seasonality, and the higher year over year gross profit was the result of higher sales from a wider product base. Gross profit margin for the EMS business came in at 8.7%, which is a decline of 0.1 percentage points sequentially and 0.6 percentage points year over year. In addition to the aforementioned level staffing rule, the gross margin sequential decline was primarily the result of lower scale during the seasonally down quarter. Year over year, this decline is principally the result of the level staffing role and product mix. Our EMS business units first quarter operating expenses were $2,800,000,000 declining $700,000,000 sequentially, while increasing $500,000,000 year over year. The operating expense sequential decline is the result of lower bonus expense, while the annual increase is the result of China's level staffing rule. Our operating expense percentage increased 1.4 percentage points sequentially to 5.9%, while declining 1.1 percentage points year over year. The operating expense percentage movements are driven by lower bonuses in the first quarter and sales seasonality. Our EMS operating profit declined $2,200,000,000 sequentially while improving $600,000,000 year over year. Our EMS operating margin was 2.8 declining 1.6 percentage points sequentially and up 0.4 percentage points year over year. From a full year perspective, we continue to target a 4% operating margin for our EMS business. On the bottom half of the page, you will find a graphical representation of our EMS revenue by application. You can see here that seasonally driven products in consumer and communication segments each declined by six percentage points. Other segments were generally seasonally soft, but were not as strongly pronounced. On Page nine, you will find key line items on the balance sheet. The only that we would like to add are that total unused credit lines amounted to $255,200,000,000 and our net debt to equity ratio dropped to 61%, the lower end of our targeted range. Page 10, you will find our equipment capital expenditures for the first quarter totaled $471,000,000 of which $337,000,000 were used in packaging, 118,000,000 in testing, dollars 11,000,000 in EMS operations, and $5,000,000 in interconnect materials and others. From the full year perspective, we currently expect to increase our wire bond capacity by about 10 to 15% during the year. We ended 2020 with slightly more than 26,000 wire bonders. We also currently expect our 2021 equipment capital expenditures to increase 10% to 15% as compared to last year. We expect to invest roughly 65% of our CapEx on packaging equipment and 20% on testing equipment. The current environment is a challenging one. It is incredibly difficult to manage capacity allocations. We continue to keep tight wafer, substrate, component, and capital equipment deliveries throughout the remainder of this year. It's even coming full circle for us. Some of our capital equipment vendors are telling us that their equipment delivery schedules are slipping because of lack of semiconductors. We are well aware that perceived capacity scarcity potentially perpetuates a snowball effect with customers scrambling for even more incremental supply chain security. There are rumblings that capacity has been systemically under built for years. But we have only been capacity constrained outside of typical seasonality for just this quarter. At the very most, under ordering in early times of COVID created an artificial lull in demand and capacity build. We don't believe the current situation is simply explained away by saying the semiconductor industry had underinvested, specifically to us, in back end capacity. The worldwide capacity was in balance two quarters ago. For us and others, there is a resurgence of the trailing edge underway. We see longer term shifts in product complexity, the expanded use of trailing edge technologies, and geopolitical disruption as having a hand in this supply and demand imbalance. Regardless of the cause, we believe we stand to extend our competitive advantage during the coming year. Not only do you look at who has the largest capacity at this time, what you have to ask is who gets the allocation of capital equipment in these times? Who has the advantage in getting allocation of components and substrates at this time? Who invested during the last three years while everyone else held back? Who can supply chain managers trust with their jobs to deliver on long term loading agreements? Industry leaders like us stretch their leads in times like these. With that, we would like to provide our second quarter business outlook as follows. For our ATM business, our ATM second quarter sequential business growth should be similar with our second quarter twenty twenty sequential business growth rate. Our ATM second quarter twenty twenty one gross margin should slightly improve from the first quarter. For our EMS business in U. S. Dollar terms, EMS second quarter business should be similar with third quarter twenty twenty business levels. Our EMS operating profit margin should be slightly below full year '20 '20 levels. Now we open the floor for Q and A. If you can please raise your hand in the Webex. No, WebEx. First question is coming from Randy Abrams, Credit Suisse. Yes. Thank you. Yes. Actually, if I could ask the first question, I tried to get down the guidance real quick, but wanted to just make sure I have the right understanding. For IC ATM, so we should imply percent sequential, about 5% if I look back to last year in US dollar terms with slightly up gross margin. Then for EMS, I think I saw compared to the third quarter twenty growth rate, is that a sequential or a year on year for that growth? And then for operating margin, assume it's slightly below. So it's a good sequential improvement. But if you could just recap it just so we have the right assumption on those guidance metrics. I can hear you. I didn't write it down. Oh, the guidance that we provided for ATM, you're correct. In terms of ATM on the top line, we're expecting the same level of growth that we thought in previous second quarter. In terms the gross profit margin, we're looking at slight improvement in the quarter. For EMS, we are looking at EMS second quarter. Top line will be similar to third quarter twenty twenty level and the operating margin should slightly below full year 2020 level. Okay. If I could follow-up the two things on the constraints. Is there a way to think about how much it is limiting you or how much behind you are on IC ATM? And is it is it strictly a wire bond that's, still the bottleneck? Or do you now have constraint on your, like, more advanced packaging, the flip chip and wafer level packaging as well? The constraint we were referring to applies to capital equipment, including wirebounder, also related to, substrates, lead frames, and, other components that are required to do the final assembly. So every part is different. I cannot tell you the but definitely it's not just a wire bonder thing. In terms of how do we manage the line balance, I think that's the operation's job. Whenever we're missing some components or materials, we try to do the line conversion, we switch back to the other, assembly where we have, materials in reserve. In terms of how much that limits our potential growth, it's very difficult to quantify that because the process right now is very dynamic. I won't be able to give you a quantitative number. Okay. And the second part of the guidance outlook, the EMS actually picking up in second quarter. Last year it did, but some years it's still down. If you could talk about the drivers for the pickup if there's some SIP projects or just existing EMS business recovering a bit earlier. If you could give an update on the overall SIP outlook, how that's now looking whether on a year over year or if any change versus the incremental growth you're expecting? Okay. I think from second quarter as well as for the full year in terms of EMS, we will continue to see growth. And for this year, I think EMS will go through a typical kind of first and second half distribution of revenue. It will be similar to roughly 44, 50 six or 43, 40 seven type of allocation distribution. And I think the overall growth come both from the traditional EMS as well as SIP. In terms of SIP, I think last year we went through a phenomenal growth in terms of our SIP revenue. We have been entertaining many more projects and many more customers as well. And some of the new and in terms of the new projects revenues, we hit we had about close to 400,000,000 revenue coming from new projects, and we are seeing same kind of momentum this year. And overall, I think the in terms of the composition of the SIP revenue, there are some, mature products going through SIP, gradually tapering off, because of, feature transition. And there there is, some projects that we are seeing, second sourcing coming in. But at the but on the other front, there new projects and there are the, or the newer projects that we entertained or we started to entertain from last year, we're seeing a project also kind of expand for this year. So we're going to see decent growth in the SIP overall and particularly in terms of new projects, so we're seeing still pretty strong momentum going forward. Okay. And I could try to on the 47.53. Is the implication I see ATM, you had mentioned high end of the 2X, which seems to imply US dollar up kind of mid to high teens. Is EMS a similar type of growth profile factoring US you consolidate I think the overall annual growth in the EMS business will be slightly better than the ATM overall growth for the year. Okay, great. Okay. And if I could ask a follow-up just on the actually two questions on the CapEx. One is the upgrade. I think if I have it right, it was originally maintained at the high level you invested last year, but now increasing. That's one I guess the area that relative to the prior of the year you're increasing. And then the second one on the wire bond at 10% to 15% year over year, is that more what you see as kind of the need, like, based on real demand, or is it a constrained number that you would add even more if if capacity? And if I could fit a third, I'm I'm curious. The foundries usually, they'll talk it takes a couple years to bring up fabs, so we might have a shortage for two years. Do you have kind of a a view on sustainability of the tightness, where traditionally lead times are they're stretched, a bit shorter than building a fab. How long it looks like, like if this looks like it may extend into next year at this stage? The the wire bonder delivery right now is one year. It's anywhere between forty weeks to, fifty two weeks, and that's the wire bonder delivery. In other words, whatever wire bonder that I ordered now, it won't be delivered until next year. So the wire bonder lead time as well as the other equipment that go with the wire bonding line also got elongated. The water boundary demand right now is is is clearly above the efficiency improvement as well as the new capital equipment that we can receive this year. So right now the wire bonder is under allocation, highly constrained. Previously I made a comment that for the whole year of 2021, we will see wirebonding. Except that the wire bonder constraint might last a little bit longer. The back end equipment has a shorter lead time comparing to the fab, so I will not draw comparison between one to the other. But right now, the supply demand imbalance is obvious for the whole industry, which is why many of our customers who already signed long term agreement and we are talking about how do we collectively through the design optimization, material standardization, we can collectively improve the efficiency to support them for 2021 as well as 2022. Okay, Great. That's helpful. And I guess just to help, if you could clarify, like, the increase in CapEx, it sounds like that might be an area you could place order to get additional tools. So was there kind of a versus the prior framework where the new the new spend is directed? The the CapEx right now is literally across the board. We're seeing the test equipment. We're seeing the fan out equipment. We're seeing the bumping equipment. We're seeing the wire bond equipment. The, almost all kinds of equipment we're we're issuing CapEx. Right now we are deal we're working with our suppliers trying to prioritize delivery schedule. In terms of the total equipment that we plan to order, we will stay at the up level, the high level, if not exceeding last year. In terms of actual delivery, that is what we need to do from an operation perspective. Now why are we placing order knowing that we have such a long lead time? Because our customers' development and product cycle as well as the long term service agreement dictates that. We're working closely with our customer to understand the demand profile long term and all of the capital equipment expansion we'll take that into consideration. Okay. Great. No. Appreciate the color. Thank you. The next caller we have is Gokul from JPMorgan. Thanks. Thanks. My first quest yeah. Can you hear me? Yeah. We can hear you. Alright. Thank you. The first question, could we talk a little bit more in detail about what are you seeing? What are the nature of these longer term commitment orders? Are you talking about two to three years price, six contact contract six volume kind of order? What does that mean for ATM pricing, margins, etcetera? And are these primarily for wirebond, or are we also seeing this spread to other areas in advanced packaging as well? Could we talk a little bit more about what what are the nature of these kind of longer term commitment orders that you're getting? The the long term service agreement depends on customer. Each one is different. I will not comment detail on that. The comment that I can make is the, the service agreement right now covers more than just the wire bonder. It was wirebounder the second half of twenty twenty, and now we're spreading into flip chip and the other areas because we do see a general constraint of the assembly capacity. In terms of the pricing environment, the pricing environment remains friendly. But as you know, we do not do tactical pricing. What we're doing right now is we're working closely with our customer to reflect the, raw material and the other component pricing increase. We took that into account and we also work close with customer on long term service agreement in terms of total demand, the capacity we need to build on behalf of their demand. The only area that I would like to comment is there are specific sectors where super heart lung, as well as the expedited, product requirement. And normally we will have the expedite fee to apply for those particular cases. But in general, the environment, remains friendly, and I believe that condition will at least, apply to the whole year of 2021, if not longer. Thank you. Thank you, doctor Ho. If I if I may also ask about, chip labs and the 2.5 d three d packaging, clearly, a lot of our compute customer, especially, seem to be talking about this in a very aggressive fashion. Could we refresh what does the fees we do on this area? When we think about the CapEx increase, are we allocating some of the CapEx to your time out as well as 2.5 d targeting efforts as well? Or so that they're still going to come a little bit later? See from the general the the MAGA friend, you understand for the 2.5 d, the three d, or the chiplet, whichever architecture you're referring to, there has been growing acceptance, growing demand from all regions, all application sectors. So ASE has been developing with our key customer those architecture. So the, that has been in place for quite some time. Now the 2020 and the 2021 scenario as we're in right now has modified the situation a little bit in the sense that because of long term service agreement with all of our key customers, The chiplet, the 2.5D fan out, also becomes a strategic development requirement as part of that overall long term service agreement. So in other words, as we're going through better delivery cycle with our key customers, We are expected to do more development with them trying to further improve the efficiency and the performance from an architectural standpoint as well as from a process point. I'm not sure the exact question that you're asking, but the, I believe those are answers that I can offer you today. Thank you. Got it. Thank you. Are we all set there, Goku? Yes. Well, I'll go back into the queue. Thanks. Okay. The next question will be coming from Bruce Lu, Goldman Sachs. Bruce, are you on the line? Yes. Yes. Thank you for the question. Very, very good result. Can you you give us a little bit more color in terms of, like, 02/2021 ATM overall? I look at, like, the first quarter revenue was very, very strong. Do expect the same year on year performance for the whole year? And also for the profitability, the gross margin improved more than 2.5 percentage point already, but only that 2.5 percentage operating margin improvement. I would be greedy to ask for a little bit more because of operating leverage. Thank you. I think the overall growth momentum in terms of ATM remains to be strong. And in the previous earnings call, were saying that we will be our overall growth will be 2x of the logic market world. And that I think that principle remains. And although we're seeing the overall industry kind of growth is kind of stepping up, we are because of the some of the capacity constraint, we're now saying that our overall growth should be approaching the high end, which we actually said in the last call saying we're expecting the growth to be anywhere from 10% to 20%. And we're seeing that the growth would likely to be reaching the high end of the range. In terms of profitability, I think for the whole at the growth level, we'll continue to see sequential growth in our gross margin as we continue to enlarge our overall operation, also improving the efficiency that we have. And for the whole year, we are very confident that we will be reaching the mid-twenty percent level. The operating margin improvement that you mentioned is really on the consolidated basis on HOCO level that we're projecting 2.5% to 3% improvement now. So when it translates to ATM, of course, the improvement will be higher because we're setting the we're only setting the EMS operating margin target to be 4% for the year. Can I take down a little bit for the ATM gross margin improvement in the first quarter? The gross margin was improved by 180 bps compared to the previous quarter, but earlier guidance for the first quarter of GPM for ATM is flat. So where are the positive surprise coming from? And can you also give us a rank in terms of the gross margin among like different business in ATM, such as firebunders, testing, you know, flip chip, you know, SIP? What was the rank for the gross margin now? We don't give the, you know, separate gross margins in our different business. But as a whole, I think the improvement that we see that we saw in the gross profit margins in this quarter largely coming from, first of all, the higher than expected revenue that we can generate in the quarter. The other is really we have a higher test revenue as well in terms Just one additional comment, when we offered the guidance, last year, we were planning for the seasonality. In other words, the communication sector will go through the typical Q1 and Q2 seasonality. At the time, we were planning on some of the equipment dealing with the communication sector might not be fully utilized as well as the test equipment, as well as the assembly or the SIP equipment. What has transpired in the first quarter was because of the loading situation and strong demand, we were able to collectively cooperate with our customers trying to utilize some of the idle equipment that would have been underutilized otherwise. And that as a result improved the revenue stream as well as the profit. That is just another comment. We believe the similar thing will permeate into Q2. In other words, what is unique about 2021 is we sort of, removed from the typical communication sector seasonality in Q1 and Q2. Now having said that, in Q3 and Q4, we will go through the reverse part of the seasonality. So right now from the operation execution wise, we have to work very hard to secure all of the supply, all of the equipment, and all of the necessary resources to make sure that after clear Q1 execution, we execute Q2 well and we can deal with the second half including the, the ATM as well as the SIP as well as the traditional seasonality of the communication sector. So overall, I think 2021, will be a very exciting year. Now in terms of the supply situation that cover covers lead frame, ABF substrate, capital equipment that you're all very familiar with, we will try to give you quarter to quarter update. As of today, we have done a decent Q1 because of the factor that Ken, Joseph, and I have just outlined. We're optimistic about Q2 and, we're quite excited about the second half of twenty twenty one. I mean, are some, headwind, the NT dollar that we have not discussed much about it. The other type of constraints and of course not the general global, political situation as well as the pandemic. But with all considered, we have given you the best guidance that we believe, is pertinent to the current uncertainty scenario. I hope that clarifies a lot of the questions about Q1 and also the outlook for Q2 and the second half. Thank you. Can I ask a question about EMS? I mean the guidance for the second quarter for EMS grew about like 10% despite the typical low seasonality. How much is due to the SteelFlash acquisition? And also the consumer segment in EMS in first quarter, since the seems to go down went down a lot, do you see a rebound in the second quarter as well or the consumer segment in EMS? Second quarter compared to first quarter, we're seeing we're seeing that both the I think the really, it's the organic growth that we're going to see, largely because of the substantial growth is mainly from the supply chain security continuity. I think a lot of the customers are because in the whole value chain, there's constraints in terms of component and some of the material supply. And I think some of the customers are really bumping up their inventory, hoping to get their safety stock go up. So we're seeing an uptick in second quarter, which is not a very not a cold second quarter performance, but that's what we're seeing now for EMS business in second quarter. So the whole year, how can how do we see the whole year revenue growth for the EMS? Because nowadays, seasonality doesn't really seem to reference anymore. Like I said, the in terms of the overall EMS business, we're expecting kind of a 44, 50 six kind of a split between the first and second half. So I think the going into the second half, we'll see new products coming on screen and we're seeing more product launching and then we'll go back to the typical seasonality, seeing a much stronger uptick in the second half. Okay. Let me try to squeeze one more question. I mean, do see a somehow different production iteration rate, especially the wire bond between AAC and a lot of Chinese OSAT makers. I mean, you know, most of the Taiwanese companies in in OSAT are having, like, extremely high utilization rate. But China is high, but not you know, it's like a step down comparing to most of the Taiwanese guys. Can you can you let us know what and what happened and why is that? Well, I think the the supply security applies somehow into, that scenario. In other words, if a supplier that has a longer working relationship who can cooperate not only the assembly complexity for you, the quality, who can also secure better component molding compounds as far as the leaf frame and substrate supply. I believe that placed, the, into the fact why people tend to place more order even though it's on the allocation mode. They still prefer to, to work with the, the, ASD or peers in Taiwan. I can't really comment on the China OSAT because I'm sure you know this scenario better than I do. But I think the product complexity, the product security, and, the geopolitical sentiment, might play, might not play into their decision, that that you have to talk to the customers. But, Ken, don't don't get me wrong. I'm fully agreed that, you know, AAC should be should have a much stronger customer demand. But your customer are actually dying or, like, you know, in serious shortage. I mean, they they need to grab like, dying people, they grab whatever they Right? So the gas seems to be a bit larger than than than I expected. So that's why I try to get some cut. I think that's precisely the point. I think when the when things are tight, I think most of the customers will look for the safest bet. And given our scale and given the leverage that we have in terms of sourcing capital equipment as well as materials. I think we are much safer bet to our customers. That's one front. And I think the other one is that, know, given your political situation, I think there is a growing concern on the longer term or mid the longer term sustainability of some of the Chinese players. I think it does play into the current situation a bit. I see, understand. Thank you. I'll go back to the queue. Thank you. Alright. Thank you. Next question is coming from Roland Xu of Citi. Hi. Thanks for taking my question. I think I just want your quick question on the CapEx. So I think for today, I don't hear you update your total CapEx spending plan this year. So how is the CapEx spending plan this year? I think Ken briefly mentioned that this year, we are expecting to spend roughly 10%, fifteen % more than we spent last year in terms of equipment CapEx. This is really to support the surge in demand that we're seeing now. And although we are kind of brought up the overall CapEx spending amount this year. But in terms of actual spending, it really depends on the delivery that we will have. But nonetheless, I think that's the current situation, upping our CapEx. And in terms of distribution, think out of the total spending, roughly 65% will be for assembly, about 21 for tests, 12% for EMS, and the rest for for our material. I think that will be the distribution for this year. Understood. So so it sounds like I think the total number should be somewhere around 1.9 to 2,000,000,000. Are you planning? Right? Yes. Last year, we spent close to 1,700,000,000.0. Yes. Yeah. Then 10 to 15% higher. Yeah. Okay. Yes. Correct. Thank you. And then probably, you know, 8085% for assembly and test So our question is, you know, when you look at TSMC's CapEx spending on advanced back end and the mark making, it's going to be around the 3,000,000,000 this year. So this actually is a much higher than your total spending, about 2,000,000,000 this year. So does it mean that you have to raise CapEx spending significantly going forward if you are going also doing trying to do more advanced packaging business? The comment about the TSMC CAPPACs for the back end. And I think the first clarification I would like to make is you really cannot make a it's not a direct comparison. The packs that they're referring to for their back end, versus the CAPAC we are referring to for the assembly equipment, are very, very different in nature. And if you really go back to the CAPAC equipment list, you will understand that. So there is no direct comparison that I can draw, between that levels. Now the second comment is the, if our customer demand us to engage in the type of configuration or the architectural design where our customer designing with foundry suppliers, then we are obligated to work with our customer to come up with our proposal. Our proposal could be in the form of what the foundry is using, but it might not be in the form. And it's up to the customers how to design their packaging, the the architecture with us. The, so that is a hypothetical questions. Right now we are engaging with several customers trying to explore, our end of the proposal. Now in some form there will be overlap, but in the majority of the form it will be quite different. Right? So I don't believe our CAPEX will be at the functional level because in nature it is extremely different. Also in terms of the variety is also quite different because we're not dealing with the large high volume capacity, for a few customers. The process and the architectural design we need to come up with has to be able to fit into the application segment for a basket or a number of customer, interchangeably. And that is the key difference between the business model versus the CapEx. Okay. So, correct me, if I'm wrong. So, you are pretty much meaning TSMC is built in, it's a technology and and proprietary technology for their customers. And this technology probably different from the platform technology you are doing for customers' product across the board. Am I reading you right or not? Yeah. That that I believe but, again, it's not what the ASU wants. It's what ASU customers want. Understood. Okay. Yeah. Thank you. And I think a follow-up question is for in the past, you said, you know, for every $1 CapEx you invest on assembly, it probably will be generate a dollar new revenue in the first year and more than $1 new revenue generation for testing for the, you know, first year. So for the CapEx you are spending now and because of this capacity tightness, are you still, you know, going to generate a similar return for the CapEx investment that you invest in your new capacity now? Well, I think as a as a rule of thumb, a dollar of investment in packaging, we can generate about a dollar 20 of revenue on any this. And for a test, a dollar of investment, we can generate about 50¢ of revenue. So in from a blended point of perspective, I think a dollar of what we're saying is in terms of assembly and test, a dollar of investment should generate a dollar of revenue for us, up in the revenue for us, to make it a economically viable, estimate. I think the, you know, from a different angle to look at TSMC's invest investment to back in, that's totally different scenario. Yeah. I know it's a very different. So so in general, you said, you know, for from the back end, you probably know we'll have that, you know, for every $1 investment, you probably will generate a dollar return. So this is still the final rule, still valid. Right? That's that's still the rule. Yes. Okay. Okay. Okay. Thank you. Thanks for taking my questions. Thank you. Alright. The next caller we have is Zhiho Ng. Oh, hi. Hi. I'm Tong Kong. Yeah. Thanks. Yeah. I I have two questions for you guys. Anyway, I I could first one regarding the white bond delivery. I work out the math. In q one, you got roughly a thousand hundred white bonders. Right? So I basically want to note the viable delivery schedule for this year. I think currently, we're looking at, you know, 3,500 to 4,000 orders for this year addition. Mhmm. And I we're expecting full delivery by the maybe October, November time frame. It will be delivered progressively, and I think full delivery were expected by October November time frame. Okay. Got you. Okay. Alright. And then the other one is on the housekeeping. What is the utilization for your Wi Fi on the business and testing that back in q one? A rough number would be fine. I think in in terms of attitude, we're around 85%, and for test, around 80. 80. And that's the theoretical utilization, right, I I believe. Yeah. That's pretty much we're pretty much maxed out. Okay. Good. And last one, on the dividend policy, any update, compared with, three three months ago? No. I think we will announce it already. It's gonna be $4.20 this this year, and the payout ratio is roughly 65%. Okay. And then that will be the rule of thumb for the future, at least for the near near future. Right? Yeah. Yes. Okay. Great. And, congratulations on my good results. Thank you. We don't have any, additional hand raisers in the queue. If you wanna ask any questions, please raise your hand. Five seconds. Four, three. Okay. Thank you for, attending our first quarter earnings re release. See you next time. Thank you. Thank you.